The Tuscaloosa City Council voted unanimously Tuesday to sue the state of Alabama over how it distributes sales tax collected from online purchases.
The lawsuit challenges the state’s Simplified Sellers Use Tax (SSUT) system, a law passed in 2016 that aims to make it easier for online retailers to collect and pay taxes. But city officials argue the system is quietly draining tens of millions of dollars from Tuscaloosa’s budget and hurting local businesses.
In a statement to The Tuscaloosa Thread, Mayor Walt Maddox said the lawsuit is about protecting local interests under the state’s current tax system.
“It is common sense—Tuscaloosa should keep what it earns, and our small businesses should have the same advantages as out-of-state corporations,” Maddox said. “This is not a step we take lightly, but feel is necessary to ensure that Tuscaloosa’s schools, community and small businesses are treated the same as corporations in California, New York and other states.”
With the SSUT system, online retailers charge an 8% sales tax at checkout, then send the money to the state. Half of that stays in Montgomery, split between the state’s general fund and the Education Trust Fund.
The other half is divided among Alabama’s 463 cities and 67 counties, not based on where the sale happened but strictly on population. As a result, a Tuscaloosa resident ordering groceries online from a Tuscaloosa store for delivery to their Tuscaloosa home could be generating tax revenue that ends up in other cities..
According to a presentation shared at the city’s SSUT Summit in April, city officials estimate Tuscaloosa will receive $14.6 million less in sales tax revenue in Fiscal Year 2025 under SSUT than it would under traditional in-store tax collection. That’s about 7.5% of the city’s $200 million general fund.
For public schools, the presentation estimated a loss of $2.76 for every $100 spent online versus in-store when comparing how SSUT is split with traditional sales tax. City officials also pointed to what they called a loophole in the application of the tax.
In recent years, the Alabama Department of Revenue has classified companies like DoorDash, Shipt and Walmart Marketplace as “marketplace facilitators,” meaning they can charge SSUT even when the order is picked, packed, and shipped from a store physically located in Tuscaloosa.
The presentation referred to this as “local taxation without representation” and warned that the current system could hurt city services, school funding and long-term economic growth if left unchallenged.
With Tuesday’s vote, the City Council gave City attorney Scott Holmes full authority to file the lawsuit against the Alabama Department of Revenue, its commissioner and other involved parties. No filing date has been announced.
Council advances housing, planning and infrastructure efforts
The Council moved forward on several long-term planning efforts, including affordable housing and infrastructure projects.
It approved a $3,600 amendment to its existing partnership with Habitat for Humanity, increasing the city’s total commitment to nearly $288,000. The money will help fund new construction using leftover 2017 federal grant dollars.
The council also authorized the Office of Community and Neighborhood Services to advertise a summary of the city’s 2025–2029 HUD Consolidated Plan and 2025 Action Plan, which outline how federal housing and development funds, such as CDBG and HOME grants, will be spent.
Linton Barbershop Plaza Project moves ahead
The Council voted to tentatively award a $647,350 construction contract to Snow-Blakeney Construction, Inc. for the long-anticipated Linton Barbershop Plaza Project.
The plaza will be built on the original site of Reverend Thomas Linton’s barbershop on Ty Rogers Avenue, a place that once served as a safe haven and meeting point during the civil rights movement.
The city also plans to pair the plaza with a large-scale mural honoring Linton’s contributions and the broader history connected to the site.
Council clears way for roadwork on University Boulevard East
The Council approved utility relocation agreements with AT&T, Comcast and Alabama Power as part of its University Boulevard East Roadway Improvements Project.
The agreements enable the city to proceed with realigning services along the corridor, thereby clearing the way for eventual road construction.
Council approves FBO lease transfer at airport
The Council approved a lease transfer at Tuscaloosa National Airport, shifting the fixed-base operator agreement from Bama Dixie FBO to Hawthorne Global Aviation Services, a national provider. The transfer could bring upgraded services and more resources to the city’s airport.
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